The Superior Court of Pennsylvania recently affirmed the trial court’s opinion involving a bad faith action in Davis v. Fidelity National Title Insurance Company (674 MDA 2014). In the bad faith action law suit brought against Fidelity in the lower court, the plaintiffs were awarded over $2 million in damages.
The plaintiffs, Richard and Maria Davis, purchased a 15 acre-plot in Lackawanna County, Pennsylvania to develop a residential housing project. Three years later in 2007, a neighboring property owner, Louis Norella claimed that a part of that property, a 1.86 acre-plot, belonged to him. Fidelity, the title insurance company that had insured the Davises’ property, recognized later that year that there was a problem with the title and assured the Davises that the matter would be resolved. It wasn’t until 2012 that Fidelity finally purchased Norella’s property for $50,000. The plaintiffs claimed that this five-year delay on Fidelity’s part prevented the project from coming to fruition at the time, thus causing a lost profit damage.
In affirming the lower court’s opinion, the Superior Court of Pennsylvania stated that the “excessive delay” experienced by the Davises implicated Fidelity in bad faith action. The court also stated this excessive delay caused direct damage to the plaintiffs.
In an appeal of the trial court’s decision, Fidelity argued that the plaintiffs’ housing project was merely speculative, and therefore Fidelity’s delay could not have had any effect on said development. In concurrence with the trial court, the Superior Court emphasized that there was plenty of evidence indicating that the Davises had already begun the project.
The court also noted that Fidelity’s appeal specifically challenged the amount of punitive damages granted by the trial court, rather than the issue of bad faith itself. Fidelity argued that $224,760.00 for compensatory damages and $1,572,909.24 in punitive damages, in addition the simple interest accrued and the plaintiffs’ attorney’s fees and costs, were excessive and not supported by the Pennsylvania law. In response, the Superior Court cited the U.S. Supreme Court cases (see Haslip and Gore) that provide precedent for the 4-to-1 ratio of punitive to compensatory damages.
Legal precedence (see Gore and Campbell) establishes that the “most important indicium” is the degree of reprehensibility in evaluating an estimation of punitive damages. The Superior Court noted the factual reprehensibility of Fidelity’s actions in this matter, and also noted how the trial court had been “appalled” by how the defendant handled the plaintiffs’ case. After citing a long list of failings by part of the defendant, the court stated, “Indeed, it is difficult to find an area in which Fidelity acted in conformance with accepted statutory, regulatory or internal standards”.
Fidelity also argued that degree of reprehensibility must be determined by plurality of factors including, in particular, physical harm. While the court agreed that Fidelity had not induced any physical harm to the plaintiffs, the other factors that had caused harm to the plaintiffs were sufficient to establish the high degree of reprehensibility in Fidelity’s conduct.
The court further stated that attorney fees can reasonably be accounted as compensatory damages finding no evidence in past trials that establish the contrary.
With this case, the Superior Court has established three important parts that will be key to future bad faith actions. First, in concurrence with legal precedent, this case affirms that damages are estimated on a 4-to-1 or 5-to-1 punitive to compensatory damage ratio. Second, that bad faith actions are largely based on asserting the degree of reprehensibility which may not necessarily include all factors, such as physical harm. Thirdly, Davis establishes that attorney fees may be considered as part of compensatory damages in such matters. In effect, the Superior Court of Pennsylvania asserted the legitimacy of the plaintiffs’ claims and upheld the long legal precedent against bad faith actions.